By Jacquelyn Lumb
SEC Deputy Chief Accountant Sagar Teotia shared some of the staff’s observations regarding the implementation of the new GAAP standards at an event in San Diego. He said a significant amount of work remains, but also cited a great deal of progress and credited the collaborative efforts of preparers, auditors, audit committees, standard setters, and regulators.
Revenue recognition. Teotia urged registrants that are in the process of implementing the revenue recognition standard to “finish strong.” For companies in the early stages of implementation, he encouraged them to ramp up their efforts in order to be successful. Teotia added that it may be easier and more efficient if all of the new standards are implemented concurrently, or partially concurrently, where system enhancements will be needed.
The new standards are likely to impact registrants’ internal control over financial reporting which will take time to implement, according to Teotia, so it is important to resolve implementation and application issues as they arise.
SAB 74 disclosure. As the effective dates near for the new standards, Teotia said the staff expects the disclosures under Staff Accounting Bulletin 74 regarding their likely impact to become more informative. The disclosure should discuss the status of registrants’ implementation efforts. For companies that have not made sufficient progress, Teotia said the disclosure will give audit committees, auditors, and investors the opportunity to hold management accountable.
The staff will accept reasonable judgments in the application of the new standards, Teotia advised, but well-reasoned judgments require time to gather facts, consider accounting alternatives, and come to a sound conclusion. This is why having enough time to implement the standards is so crucial, he explained. With the application of the new standard on revenue recognition just a few months away, Teotia said the time to ask question is now in order to avoid a massive backlog at the end of the year.
Leases. The new standard on leases is effective beginning in 2019, but can be adopted earlier. As with revenue recognition, Teotia encouraged companies to assess the status of their implementation plans and their ability to achieve the standard’s financial reporting objectives. The steps that are required to adopt the lease standard may be time-consuming, he warned, so getting started early is a best practice.
Unlike the new revenue recognition and credit impairment standards, Teotia noted that FASB did not appoint a transition resource group to help in the implementation of the new lease standard. He said it is important to raise accounting questions as soon as possible and urged a dialogue with the staff as questions arise. The questions that the Office of the Chief Accountant has received so far mostly relate to scoping and transition matters, he advised.
Credit losses. The staff has spent significant time evaluating the requirements of the new standard on credit losses. Teotia reported that the staff is actively monitoring the implementation efforts that are underway. Based on its monitoring activities, Teotia said the staff has seen the importance of coordination among all stakeholders, including preparers and auditors in implementing the standard. The transition resource group is assisting stakeholders as they work through the implementation issues that have arisen. Just as with revenue recognition and leases, Teotia said the staff will accept well-reasoned judgments in the application of the new credit loss standard.